India: Chief Controlling Revenue Authority V. Coastal Gujarat Power Ltd*

Syndicated advances are quite common in lending transactions. In large financing, a single bank may not be in a position to provide the finance by itself. Hence, the finance is syndicated such that two or more banks agree to provide finance to a borrower on common terms governed by a single covenant between all parties. Similarly, a common security trustee is appointed to receive and hold the security provided by the borrower, which is held for the benefit of the common lenders. The issue of stamp duty on mortgages provided by a borrower to a security trustee for the benefit of syndicated lenders came up for consideration before the Supreme Court in Chief Controlling Revenue Authority v. Coastal Gujarat Power Ltd.²

FACTS:

Coastal Gujarat Power Ltd ("Respondent") entered into loan agreements with a consortium of thirteen lenders ("Lenders") in 2008 seeking financial assistance for setting up an Ultra Mega Power Project in Gujarat. The consortium of lenders entered into a Security Trustee Agreement ("Agreement") appointing State Bank of India - Project Finance Division as the Security Trustee. The Respondent also executed an "Indenture the deed of mortgage for delayed after assets" ("Instrument") with the Security Trustee creating a mortgage over its assets as security for the loans for and on behalf of the Lenders. By virtue of this Instrument, the Lenders had a beneficial interest in the mortgaged property. The Instrument was registered upon payment of Rs. 4, 21,000 as stamp duty. The Chief Controlling Revenue Authority ("Appellant"), however, claimed that the Respondent was liable to pay a further Rs. 54,62,000/- and sought payment of this outstanding amount. The matter was considered by the Deputy Collector, Stamp Duty Valuation Organization which directed the Respondent to pay the remaining amount and also imposed a penalty of Rs. 250. The Respondent filed a revision petition before the stamp authorities, which was dismissed. The Respondent deposited the amount claimed by the Appellant under protest. The Respondent then sought the opinion of the High Court of Gujarat by way of a Reference. The Gujarat HC held that stamp duty was payable on the Instrument and not on the transaction contemplated or affected by it. The Gujarat HC held in favour of the Respondent and observed that no additional stamp duty was payable. The instrument was a mortgage deed between the borrower (mortgagor) and the security trustee (mortgagee). It was the security trustee alone who had the power to enforce the mortgage and not the banks since there is only one instrument creating mortgage in favour of the security trustee, the relationship between the thirteen lenders and the borrower was independent from that of the borrower and the security trustee. Further, the Gujarat HC also noted that the mortgage deed neither involved distinct matters nor contemplated distinct transactions. The Appellant hence filed a Special Leave Petition.

ISSUE:

The issue was whether a single mortgage executed in favour of the security trustee for the benefit of several syndicated lenders would be treated as a single document comprised of a single matter or as multiple documents comprising of several distinct matters/distinct transactions under one document?

JUDGEMENT:

The Supreme Court concluded that although the mortgage deed is one single document, since it involves thirteen different transactions, the borrower is liable to pay stamp duty for each transaction, by considering each transaction as a separate deed. Section 5³ deals only with an instrument which comprises more than one transaction and it is immaterial whether those transactions are of the same category or of different categories.⁴

The Supreme Court also relied upon The Member, Board of Revenue v. Arthur Paul Benthall,⁵ in arriving at its conclusion. It also held that the sole purpose of executing a single Mortgage Deed instead of different documents pertaining to different lenders was to evade payment of stamp duty. Consequently, the appeal was allowed and the Company was liable to pay deficit stamp duty together with interest as directed by the revenue authorities.

ANALYSIS:

In reaching its decision, the court has considered the surrounding circumstances and collateral evidence such as inter-se agreements between the Security Trustee and the Lenders and not merely the document in question. The decision taken by the Supreme Court does not rely mainly on the documentper sebut rather regards "transactions" as deciding factors while assessing how stamp duty is to be levied. The Supreme Court seems to have"looked through"the borrowing arrangement instead of "looking at" it.⁶

The Supreme Court paid little regard to the specific capacity in which the trustee holds the mortgage and treated it simply as a pass-through, implying that it is acting as an agent of the lenders. In the present case, it ignores the presence of a security trustee in the transaction and treats each and every beneficiary as a separate executing party.

An analysis of the judgment indicates that it is: both fact-specific and State stamp law-specific. The ratio of the judgment primarily relies on the fact that the scope of Section 5 of the Gujarat Stamp Act, 1958 has been expanded to include 'distinct transaction⁷. This means that this judgment will be binding only on (mortgage) transactions (i) in Gujarat and (ii) in other Indian States which have amended Section 5 to encompass 'distinct transactions'. As regards other States in India, in the absence of provisions akin to Section 5 of Gujarat Stamp Act, 1958 charging "distinct transactions", the Supreme Court Judgment will not have an adverse effect even if only one (mortgage) deed has been executed mortgaging a property within that State to secure loans by multiple lenders in favour of a security trustee acting for these multiple lenders.

Like all fiscal statues, stamp duty laws should be interpreted strictly on an unambiguous reading of the provisions of the law and not on the basis of the State's understanding of the intention of the legislature. The most important point which emerges out of this judgment is the long-standing need for a uniform Stamp Act to cover such transactions.

Footnotes

* Civil Appeal No. 6054 of 2015 (Arising out of S.L.P. (C) No. 32319 of 2013), Decided On- 11.08.2015

2 Id.

3Instrument relating to several distinct matters or distinct transactions-"Any instrument comprising or relating to several distinct matters or distinct transaction shall be chargeable with the aggregate amount to the duties with which separate instrument, each comprising or relating to one of such matters or distinct transactions, would be chargeable under this Act."

4 Ram Swarup v.  Joti & Anr, AIR 1933 All 321

5 1956 AIR 35; 1955 SCR (2) 842

6 Vodafone International Holdings B.V. v. Union of India & Anr, (2012) 6 SCC 613

7 Bombay Stamp (Gujarat Second Amendment) Act, 2007

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.